Research Report: The UK Leasehold Property System – History, Challenges, and Reform

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

Abstract

The leasehold property system in the United Kingdom represents a unique and often contentious form of land tenure, deeply embedded in centuries of legal and socio-economic evolution. Its complex history, marked by a gradual shift from feudal arrangements to formalized commercial and residential agreements, has concurrently given rise to significant challenges for homeowners. This detailed research report undertakes an extensive examination of the leasehold system’s origins and its protracted development through various legislative milestones. It meticulously analyses the specific, multifarious issues routinely encountered by leaseholders, ranging from financial burdens like escalating ground rents and opaque service charges to fundamental questions of property control and the prohibitive costs associated with lease extensions. Furthermore, the report provides a comprehensive comparative analysis with alternative global property ownership models, such as commonhold, strata title, and condominium systems, highlighting their structural advantages in fostering greater owner autonomy and transparency. By exploring these intricate facets, the report aims to offer a profound and nuanced understanding of the UK leasehold system’s inherent complexities, its historical legacy, and its broader implications for property rights, affordability, and the overarching real estate market.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

1. Introduction

The UK leasehold system has perpetually stood as a nexus of legal and social discourse, often criticised for its anachronistic nature in a modern property market. Rooted in the feudal practices that shaped England’s land ownership structure, it has evolved into a distinctive tenure where a property owner effectively holds a long-term right to occupy land or a building, granted by a freeholder, rather than outright ownership of the land itself. This peculiar arrangement, while having facilitated certain types of development historically, has simultaneously spawned a multitude of challenges for contemporary homeowners, prompting sustained calls for reform from various stakeholders, including government, consumer groups, and legal experts.

Despite numerous legislative interventions over the past century, the system’s inherent complexities and perceived inequities continue to generate debate. The dynamic interplay between freeholders (landlords) and leaseholders (tenants) often leads to imbalances of power, particularly concerning property management, financial contributions, and the ability to exercise full control over one’s home. This report endeavours to provide a meticulous, in-depth analysis of the leasehold system, tracing its historical underpinnings from feudal England through pivotal legislative reforms. It will systematically dissect the prevalent issues confronting leaseholders in the modern era, offering detailed explanations of concepts such as ground rents, service charges, marriage value, and the broader challenges of control and financial transparency. Finally, a rigorous comparative perspective will be offered, examining alternative property ownership models from across the globe to contextualise the UK’s unique position and to identify potential pathways for future, more equitable, property law reforms.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

2. Historical Origins of the Leasehold System

2.1 Feudal Foundations and the Concept of Tenure

The leasehold system, as it exists in the UK today, is a direct descendant of the feudal land tenure system that was firmly established following the Norman Conquest of 1066. Under this hierarchical structure, all land in England was deemed to be ultimately owned by the Crown. Individuals did not hold absolute ownership (allodial title) but rather held land ‘of’ the Crown, or ‘of’ a superior lord, under various forms of ‘tenure’. This fundamental concept of holding land rather than owning it outright is crucial to understanding the genesis of leasehold.

Early feudal tenures were primarily agricultural, involving obligations of service (e.g., knight service, serjeanty) or rent (e.g., socage). Over time, as society evolved and the rigidities of feudalism waned, these personal services were largely commuted into monetary payments. The Statute of Quia Emptores 1290 played a significant role by prohibiting ‘subinfeudation’ (the creation of new, lower tenures) and instead mandated ‘substitution’ for all free tenures. This meant that when land was alienated, the new tenant held it directly from the vendor’s lord, not from the vendor themselves. While Quia Emptores was instrumental in streamlining the feudal pyramid for freehold tenures, it inadvertently incentivised the development of leasehold arrangements as a means to circumvent its restrictions and to create subordinate interests in land without granting a new freehold tenure. Thus, the concept of a grantor retaining the freehold reversion while granting a temporary interest (a lease) became a practical and legally permissible mechanism for land use and development. (en.wikipedia.org/wiki/Quia_Emptores)

2.2 Development Through the Ages and the Rise of Urban Leases

Initially, leases were typically short-term agreements, often for agricultural purposes or for specific commercial uses, providing the lessee with a right to occupy and use land for a defined period in exchange for rent. However, as England transitioned from an agrarian society to one experiencing rapid urbanisation and industrialisation from the 17th century onwards, the nature and duration of leasehold arrangements began to transform. Developers and landowners found that granting long leases – typically for 99, 125, or even 999 years – was an extremely effective way to facilitate urban development and speculative building without having to tie up substantial capital in outright land purchase.

Landowners could lease plots of land for extended periods, receiving a steady ground rent, while developers could construct properties on these plots, selling the leasehold interests to occupiers. This model was particularly prevalent in major cities like London, where large estates (e.g., the Grosvenor, Cadogan, and Portman estates) often developed their land on a leasehold basis. The long lease allowed for significant investment in property construction while ensuring the underlying freehold remained with the original landowner, providing a long-term income stream and ultimate reversionary control. (theleaseextensioncompany.com/the-history-of-leaseholds-and-property-ownership-in-the-uk/)

Legally, the development of equity in the Court of Chancery also played a role in shaping leasehold law, particularly concerning the enforcement of covenants and the protection of tenant’s rights. However, the true modernisation and consolidation of English property law, including leaseholds, came with the monumental Law of Property Act 1925 (LPA 1925). This Act, alongside other significant pieces of legislation passed in the same year (e.g., Land Registration Act 1925, Trustee Act 1925, Administration of Estates Act 1925, Land Charges Act 1925), aimed to simplify and streamline land ownership.

The LPA 1925 famously reduced the myriad of historical legal estates and interests in land to just two: the ‘fee simple absolute in possession’ (freehold) and the ‘term of years absolute’ (leasehold). All other interests were relegated to equitable status. This simplification made land conveyancing more straightforward but solidified the fundamental distinction between freehold and leasehold ownership, providing the foundational legal framework that underpins the modern leasehold system. The Act also made leases for terms of years absolute legal estates, reinforcing their status as a legitimate and distinct form of property ownership. (en.wikipedia.org/wiki/Law_of_Property_Act_1925)

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

3. Evolution of Leasehold Laws: A Century of Reform Efforts

The 20th and early 21st centuries have witnessed a continuous, albeit often piecemeal, effort to reform the leasehold system in the UK. These reforms have largely been driven by a recognition of the inherent power imbalance between freeholders and leaseholders, and the financial and practical difficulties faced by the latter.

3.1 Early Reforms: The Post-War Drive for Homeownership and the 1967 Act

Following the Second World War, and particularly from the 1960s onwards, there was a growing political and social emphasis on promoting homeownership. However, many homeowners found themselves in a precarious position as their long leases approached expiry, potentially losing their homes and the equity built over decades, with no compensation. Freeholders could demand exorbitant sums for lease extensions or the purchase of the freehold, or simply allow the lease to expire and regain possession of the property, including any buildings erected on it. This exploitation, often referred to as ‘leasehold enfranchisement’, led to significant public outcry and political pressure.

The Leasehold Reform Act 1967 (LRA 1967) was the first major legislative intervention designed to address these injustices. Its primary purpose was to grant long leaseholders of houses the statutory right to either:

1. Enfranchise: Purchase the freehold interest in their property; or
2. Extend their lease: Obtain a 50-year extension to their existing lease beyond its original term.

To qualify, the property had to be a house, the lease had to be a ‘long lease’ (originally granted for more than 21 years), and the leaseholder had to meet certain residency and financial criteria. This Act was a landmark piece of legislation as it fundamentally shifted the balance of power, empowering leaseholders with a statutory right to secure their tenure. However, it was limited in scope, applying only to houses and not to flats, which were increasingly becoming the predominant form of new residential leasehold property. (en.wikipedia.org/wiki/Leasehold_Reform_Act_1967)

3.2 The Leasehold Reform, Housing and Urban Development Act 1993

The limitations of the 1967 Act, particularly its exclusion of flats, became increasingly apparent as flat ownership under leasehold tenure became widespread. Many flat owners faced similar issues of declining lease values, difficulties in selling, and expensive lease extensions. This led to the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993). This Act was a more comprehensive attempt to address leasehold issues, particularly for flats, by introducing:

1. Individual Lease Extension for Flats: A right for qualifying flat leaseholders to extend their lease by an additional 90 years (on top of the unexpired term), with ground rent reduced to a peppercorn (zero). This aimed to provide greater security and improve marketability.
2. Collective Enfranchisement for Flats: A significant innovation that allowed qualifying leaseholders in a block of flats to collectively purchase the freehold of their building. This aimed to give leaseholders greater control over the management and long-term future of their building, effectively turning a leasehold block into a form of collective freehold ownership.

LRHUDA 1993 also introduced a statutory valuation formula for determining the price payable for enfranchisement or lease extension. A contentious component of this formula was the ‘marriage value’, which represented the increase in the property’s value attributable to the merger of the leasehold and freehold interests. The Act stipulated that when a lease had fewer than 80 years unexpired, 50% of this marriage value was payable to the freeholder. This often added a substantial cost to the premium payable by leaseholders, particularly for those with shorter leases. Despite its ambition, the 1993 Act was criticised for its complexity, high costs, and the convoluted procedures involved in exercising these rights, often necessitating expensive legal and valuation advice. (en.wikipedia.org/wiki/Leasehold_Reform,_Housing_and_Urban_Development_Act_1993)

3.3 The Commonhold and Leasehold Reform Act 2002

Recognising the persistent problems with the leasehold system, particularly the absence of a straightforward freehold ownership model for flats, the Commonhold and Leasehold Reform Act 2002 (CLRA 2002) was enacted. This Act had two primary objectives:

1. Introduce Commonhold: To establish a new form of freehold ownership for flats and other interdependent properties (e.g., housing estates with shared facilities). Commonhold was conceived as a direct alternative to leasehold, where individual unit owners would collectively own and manage the common parts of the building or development through a Commonhold Association, a company limited by guarantee. The idea was to eliminate the landlord-tenant relationship and give owners greater autonomy and control, mirroring condominium or strata title systems found elsewhere.
2. Further Reform Leasehold: To address some of the remaining grievances within the existing leasehold system. Key leasehold reforms included simplifying enfranchisement procedures, restricting freeholders’ ability to forfeit leases, providing greater transparency over service charges (e.g., requiring summary of rights and obligations, enabling applications to tribunals), and introducing the ‘Right to Manage’ (RTM), allowing leaseholders to take over the management functions of their building without having to purchase the freehold.

Despite its ambitious introduction, commonhold failed to gain widespread adoption in the UK. Several factors contributed to this failure: its initial complexity and lack of clarity, a reluctance from developers and lenders to embrace an unfamiliar model, the entrenched nature of the leasehold market, and the absence of strong incentives for conversion from existing leaseholds. As a result, the vast majority of flats and interdependent properties in England and Wales continue to be held on a leasehold basis, making the leasehold reforms within the 2002 Act more impactful in practice than the commonhold provisions. (en.wikipedia.org/wiki/Commonhold_and_Leasehold_Reform_Act_2002)

3.4 Recent Legislative Developments: A New Wave of Reforms (2017-2024)

The period from 2017 onwards saw renewed political impetus for comprehensive leasehold reform, largely driven by increasing public awareness of the detrimental impact of rising ground rents, unfair service charges, and the challenges associated with lease extensions. A significant catalyst was the ‘ground rent scandal’ where developers were selling new build homes with escalating ground rents that doubled every 10-25 years, rendering properties unsellable and unmortgageable. This, coupled with the Grenfell Tower tragedy in 2017 which highlighted issues of building safety costs disproportionately falling on leaseholders, amplified calls for radical change.

Recognising these systemic issues, the government commissioned the Law Commission to undertake a comprehensive review of leasehold law, which resulted in a series of detailed recommendations published between 2018 and 2020, covering enfranchisement, commonhold, and the right to manage. These recommendations formed the basis for subsequent legislative proposals.

3.4.1 Leasehold Reform (Ground Rent) Act 2022

The Leasehold Reform (Ground Rent) Act 2022 was the first significant step in this new wave of reforms, aiming to tackle the contentious issue of ground rents. Effective from 30 June 2022, the Act legislated to eliminate ground rents on most new residential long leases (i.e., leases for a term of more than 21 years) in England and Wales. For these new leases, ground rent is now legally capped at a ‘peppercorn’ a year, effectively meaning zero financial value. The Act also prohibits administrative charges for collecting this peppercorn rent.

While a pivotal step in protecting future leaseholders from escalating ground rent clauses, the 2022 Act had a crucial limitation: it did not apply retrospectively to existing leases. This meant that millions of leaseholders who were already subject to onerous ground rent clauses continued to face those burdens, highlighting the need for further reform. (en.wikipedia.org/wiki/Leasehold_Reform_%28Ground_Rent%29_Act_2022)

3.4.2 Leasehold and Freehold Reform Act 2024

The culmination of years of consultation and parliamentary debate, the Leasehold and Freehold Reform Act 2024 represents the most significant attempted overhaul of the system in decades. Its stated aims were ambitious: to make it cheaper and easier for leaseholders to extend their lease or buy their freehold, and to improve the rights of leaseholders in relation to the management of their buildings.

Key provisions of the Act as passed include:

• Extending Lease Lengths: All new lease extensions (both for houses and flats) will be for a standard term of 990 years, replacing the previous 50 or 90-year extensions, effectively granting indefinite security of tenure without further need for renewal. This also removes the previous requirement for leaseholders to have owned their property for two years before being eligible to extend their lease.
• Abolition of Marriage Value (partial): The Act sought to abolish marriage value from the valuation calculation for enfranchisement and lease extensions. While the ambition was to remove this contentious element entirely, the final version of the Act amends the calculation, making it cheaper, but does not entirely eliminate the freeholder’s ability to charge for development value. However, it still significantly reduces the premium payable by leaseholders, especially for shorter leases.
• Simplified Valuation: The Act aims to simplify the valuation process for calculating the premium for extensions or enfranchisement, reducing professional fees and making the process more transparent.
• Banning Leasehold Houses: With very limited exceptions, the Act bans the creation of new leasehold houses, meaning new houses will almost exclusively be sold on a freehold basis.
• Increasing Non-Residential Limit for Collective Enfranchisement: For blocks of flats, the Act increases the non-residential proportion that can be included in a building qualifying for collective enfranchisement from 25% to 50%. This will allow more mixed-use buildings to qualify.
• Improved Transparency for Service Charges: The Act strengthens provisions around service charge transparency, including clearer requirements for demands and greater rights for leaseholders to challenge costs.
• Building Safety Remediation: The Act includes measures aimed at ensuring that qualifying leaseholders are protected from the costs of remediating historical building safety defects, building on the protections introduced by the Building Safety Act 2022. It seeks to place the responsibility more firmly on developers and freeholders.

Crucially, one of the most anticipated reforms – the retrospective capping of ground rents for existing leases to a peppercorn – was controversially dropped from the Act during its final stages in Parliament. This omission means that millions of current leaseholders will continue to pay often escalating ground rents, prompting significant disappointment and indicating that further legislative intervention may be necessary in the future to address this ongoing burden. The Act also did not go as far as to fully implement the Law Commission’s recommendations for universal commonhold as the default tenure. (en.wikipedia.org/wiki/Leasehold_and_Freehold_Reform_Act_2024, commonslibrary.parliament.uk/research-briefings/CBP-8047/)

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

4. Challenges Faced by Homeowners in the Leasehold System

The inherent structure of the leasehold system, where ultimate ownership of the land (freehold) is separated from the right to occupy a property for a defined term (leasehold), creates a unique set of challenges for homeowners. These issues often stem from the power imbalance between freeholders and leaseholders, the financial obligations imposed, and the often opaque and complex legal framework.

4.1 Ground Rents: A Historical Relic with Modern Burdens

Historically, ground rent was a nominal sum, a token payment to acknowledge the freeholder’s continuing superior title to the land. However, over time, particularly in the latter part of the 20th century and early 21st century, ground rents evolved into a significant revenue stream for freeholders and investors. This transformation led to some of the most contentious issues in the leasehold debate.

• Escalating Clauses: Many modern leases, particularly those on new-build properties, included ground rent review clauses that allowed for periodic increases. The most egregious of these were ‘doubling clauses’, where the ground rent doubled every 10 or 20 years, leading to exponential increases that could quickly render a property unaffordable or unsellable. Other clauses linked ground rent to the Retail Price Index (RPI), which, while seemingly less aggressive, could still lead to substantial increases over the term of a long lease.
• Impact on Affordability and Mortgageability: High and escalating ground rents significantly increase the overall cost of homeownership, placing financial strain on leaseholders. Crucially, they also made properties difficult, if not impossible, to mortgage. Lenders became increasingly unwilling to lend on properties with onerous ground rent clauses, classifying them as ‘unmortgageable’, which in turn severely hampered resale values and created ‘leasehold blight’.
• Lack of Value for Money: Leaseholders often perceive ground rent as a payment for nothing, receiving no tangible service or benefit in return, unlike service charges which are theoretically linked to property maintenance. This perception fuels resentment and calls for its abolition.

While the Leasehold Reform (Ground Rent) Act 2022 has addressed this for new leases by capping them at a peppercorn, the millions of existing leaseholders continue to grapple with pre-existing, often burdensome, ground rent clauses. The failure of the Leasehold and Freehold Reform Act 2024 to retrospectively cap these existing rents remains a major point of contention and a significant financial burden for many.

4.2 Service Charges: Transparency, Reasonableness, and Disputes

Service charges are payments made by leaseholders to the freeholder (or managing agent) for the maintenance, repair, and management of the building’s common parts, including communal areas, structural elements, shared facilities, and building insurance. While necessary for the upkeep of the property, they are a frequent source of disputes and frustration for leaseholders due to issues of:

• Lack of Transparency: Leaseholders often report difficulty in obtaining clear, itemised accounts of how their service charges are being spent. Budgets can be vague, and actual expenditure may differ significantly from estimates, leading to unexpected costs.
• Reasonableness of Charges: There is a constant tension over the ‘reasonableness’ of the charges levied. Leaseholders may feel that costs for repairs, maintenance, or management fees are excessive, not reflective of the work done, or include charges for services not provided or poorly executed. The First-tier Tribunal (Property Chamber) offers a mechanism for leaseholders to challenge the reasonableness of service charges, but this process can be lengthy, costly, and legally complex.
• Major Works: Significant costs can arise from ‘major works’ – large-scale repairs or improvements to the building’s structure or communal areas (e.g., roof replacement, lift refurbishment, external redecoration). Leaseholders are often required to contribute substantial sums, sometimes tens of thousands of pounds, with little to no say in the choice of contractor or the scope of works. The Section 20 consultation process, which requires freeholders to consult with leaseholders on major works above a certain threshold, is often criticised as being inadequate or not genuinely consultative.
• Building Insurance: Freeholders typically arrange the building insurance for the entire block, and leaseholders are obligated to pay a share of the premium through their service charges. Leaseholders often have no control over the insurer chosen, nor any ability to shop around for more competitive rates, leading to concerns about inflated premiums or commissions received by the freeholder/managing agent.
• Management Fees: The fees charged by managing agents can also be a source of contention, with leaseholders questioning their proportionality and the quality of service provided. Despite the Right to Manage (RTM) introduced by the 2002 Act, which allows leaseholders to take over management of their building without acquiring the freehold, the process for establishing an RTM company is often complex, costly, and requires significant collective effort and organisation among leaseholders.

4.3 Lack of Control and the Burden of ‘Marriage Value’

Beyond financial charges, leaseholders often feel a profound lack of control over their own homes and the building they live in, leading to a sense of disempowerment.

• Restrictions and Covenants: Leases typically contain numerous covenants that restrict what a leaseholder can do with their property. These can include prohibitions on making alterations (even internal cosmetic changes) without the freeholder’s consent, restrictions on owning pets, limitations on subletting, or rules regarding the type of flooring installed. Obtaining consent often incurs administrative fees from the freeholder, even for minor alterations.
• Enforcement Powers of the Freeholder: The freeholder retains significant enforcement powers, including the ultimate sanction of ‘forfeiture’, where a lease can be terminated, and the property repossessed by the freeholder, often for breaches of covenant (e.g., non-payment of ground rent or service charges) or if the leaseholder fails to meet certain conditions. While forfeiture is subject to strict legal safeguards and relief from forfeiture can be granted by courts, the threat remains a powerful tool in the freeholder’s arsenal, creating an inherent imbalance of power.
• ‘Marriage Value’ and Lease Extensions: As a lease term diminishes, the property’s value decreases, particularly when it falls below 80 years. This phenomenon, known as ‘leasehold blight’, makes properties difficult to sell and mortgage. Leaseholders often need to extend their lease to maintain property value and marketability. The cost of a lease extension can be substantial, and a key component of this cost has historically been ‘marriage value’. Marriage value represents the increase in the property’s value that arises from merging the leasehold and freehold interests (or extending the lease to a point where the freeholder’s reversionary interest is negligible). When a lease falls below 80 years, 50% of this marriage value becomes payable to the freeholder as part of the premium for a lease extension or enfranchisement. This additional cost can add many thousands, or even tens of thousands, of pounds to the premium, making lease extensions prohibitively expensive for many. While the Leasehold and Freehold Reform Act 2024 aims to abolish marriage value, its full impact on valuation is still being assessed, and the legislative journey revealed the deep-seated resistance to fully eliminating this revenue stream for freeholders.

4.4 Legal and Administrative Complexities

The leasehold system is notoriously complex, requiring specialist legal advice for even seemingly straightforward transactions. This complexity arises from:

• Multiplicity of Legislation: The body of leasehold law is fragmented across numerous Acts of Parliament (1925, 1967, 1993, 2002, 2022, 2024, and others), each with intricate rules, qualifications, and exceptions. Navigating these statutes requires expert knowledge.
• Lengthy and Costly Processes: Exercising statutory rights, such as collective enfranchisement or individual lease extension, involves highly formalised procedures, strict timelines, and the need for qualified valuers and solicitors. These processes can be lengthy, taking many months, and incur significant professional fees, regardless of the outcome.
• Dispute Resolution: Disputes over service charges, management issues, or lease terms often end up in the First-tier Tribunal (Property Chamber), a specialist tribunal that hears cases related to residential property. While intended to be more accessible than traditional courts, the process can still be adversarial, time-consuming, and require legal representation, adding to the financial and emotional burden on leaseholders.

4.5 The Building Safety Crisis: An Exacerbated Burden

The Grenfell Tower fire in 2017 exposed systemic failures in building safety, particularly concerning external cladding and fire compartmentation in multi-occupancy buildings. This crisis has placed an unprecedented and unjust burden on leaseholders in affected buildings.

• Unfair Remediation Costs: Leaseholders in buildings with dangerous cladding or other fire safety defects have often been faced with astronomical bills for remediation works, sometimes totalling hundreds of thousands of pounds per flat. These costs were demanded through service charges, despite leaseholders having no responsibility for the original design, construction, or regulation of their buildings.
• Insurance Premiums: Building insurance premiums for affected blocks have soared, further contributing to leaseholders’ financial distress.
• Unsellable Properties: Properties in buildings with unresolved safety issues are often deemed unsellable or unmortgageable, trapping leaseholders in homes they cannot afford to repair or escape from.

While the Building Safety Act 2022 and subsequent government initiatives have sought to provide some protection to qualifying leaseholders from these costs (e.g., through developer pledges, the Building Safety Fund, and legal protections against historical safety defect remediation costs for certain leaseholders), the reality on the ground remains complex. Many leaseholders are still fighting to ensure the costs are borne by those responsible (developers, freeholders, manufacturers) rather than themselves, highlighting the profound vulnerability inherent in the leasehold tenure when major unforeseen liabilities arise. This crisis has starkly revealed the limits of leaseholder control and the disproportionate risks they bear compared to freeholders who retain the ultimate property interest. (gov.uk/government/collections/building-safety-act-2022-guidance-and-factsheets)

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

5. Comparative Analysis with Global Property Ownership Models

The challenges inherent in the UK’s leasehold system become particularly apparent when contrasted with common forms of multi-ownership property models adopted in many other jurisdictions worldwide. These alternative systems generally confer greater control, transparency, and outright ownership of the individual unit, reducing the landlord-tenant dynamic that defines UK leasehold.

5.1 Commonhold Systems: The UK’s Unfulfilled Potential and Global Precedent

As discussed, commonhold was introduced in the UK by the Commonhold and Leasehold Reform Act 2002 as a direct freehold alternative to leasehold for flats and other inter-dependent properties. The fundamental principle of commonhold is that each unit owner owns the freehold of their individual unit, and collectively, all unit owners own the freehold of the common parts (e.g., hallways, roofs, foundations, gardens) through a Commonhold Association (a company limited by guarantee). This structure eliminates the landlord-tenant relationship and the concept of diminishing lease terms, ground rents, and freeholder control.

Despite its advantages in theory, commonhold has seen minimal uptake in the UK. The reasons for its failure are multifaceted:

• Developer Resistance: Developers preferred the established leasehold model due to its familiarity, ease of sale, and the potential for creating ongoing revenue streams (e.g., through ground rents, service charge management).
• Lender Reluctance: Mortgage lenders were initially hesitant to lend on commonhold properties due to a lack of understanding and perceived risks with an unproven tenure.
• Complexity and Cost of Conversion: Converting existing leasehold blocks to commonhold was deemed too complex and costly, with insufficient incentives.
• Lack of Awareness: There was insufficient public awareness and understanding of commonhold as an alternative.

However, across many parts of Europe, North America, and beyond, similar collective freehold ownership models are the norm for multi-occupancy buildings. For instance, in many continental European countries, such as Germany (Wohneigentum or WEG), France (Copropriété), and Spain (Propiedad Horizontal), apartment ownership is typically based on a direct freehold share of the building and its common parts. Owners manage the building through a democratic assembly, electing a management board or syndic. This model fosters collective responsibility and control, where decisions are made by the owners themselves, rather than by an external freeholder.

5.2 Strata Title in Australia

Australia’s ‘strata title’ system, first introduced in New South Wales in 1961, is a highly successful and widely adopted model for the ownership of multi-unit developments, including apartment blocks, townhouses, and commercial units. It shares conceptual similarities with commonhold and condominium systems but has its own distinct legal framework and terminology.

Under strata title:

• Individual Ownership: Each owner holds a freehold title to their individual ‘strata lot’ (e.g., an apartment), including the interior of their unit.
• Shared Ownership of Common Property: All strata lot owners collectively own the ‘common property’ (e.g., the building’s structure, hallways, roofs, elevators, gardens, shared facilities like pools or gyms) as tenants in common.
• Owners Corporation (or Strata Company): The collective ownership and management of the common property are vested in an ‘Owners Corporation’ (also known as a Body Corporate or Strata Company). This is a legal entity comprising all strata lot owners, which operates democratically. The Owners Corporation is responsible for the maintenance, repair, and administration of the common property, and for enforcing the scheme’s ‘by-laws’.
• By-Laws: These are rules governing the use and enjoyment of the common property and individual lots within the strata scheme (e.g., pet policies, noise restrictions, rules for renovations). They are set by the Owners Corporation and are legally binding on all owners and residents.
• Levies (Service Charges): Owners pay regular contributions (known as ‘levies’ or ‘contributions’) to the Owners Corporation to cover the costs of maintenance, insurance, utilities for common areas, and a sinking fund (reserve fund) for future major capital works. These levies are determined by the Owners Corporation based on budgets agreed by owners.
• Dispute Resolution: Each Australian state has specific tribunals or bodies (e.g., NSW Civil and Administrative Tribunal – NCAT) dedicated to resolving strata-related disputes efficiently and cost-effectively.

The strata title system offers transparency, democratic governance, and direct ownership, empowering residents with a clear stake and voice in the management of their shared property. Its widespread acceptance and well-defined legal framework make it a robust model for high-density living. (en.wikipedia.org/wiki/Strata_title)

5.3 Condominium Ownership in the United States and Canada

In the United States and Canada, ‘condominium’ ownership (often shortened to ‘condo’) is the prevalent form of ownership for apartments and similar multi-unit developments. While state laws govern the specifics, the underlying principles are consistent across jurisdictions.

• Fee Simple Ownership: A condominium owner holds ‘fee simple’ (freehold) title to their individual unit, including the airspace within its boundaries. They are generally free to sell or mortgage their unit like any other freehold property.
• Tenancy-in-Common for Common Elements: The structural components of the building and the common areas (e.g., land, roofs, foundations, lobbies, corridors, recreational facilities) are owned collectively by all unit owners as ‘tenants-in-common’.
• Homeowners Association (HOA) / Condominium Corporation: The collective management and governance are undertaken by a ‘Homeowners Association’ (HOA) in the US, or a ‘Condominium Corporation’ in Canada. This is a non-profit entity, typically incorporated, whose membership comprises all unit owners. The HOA is governed by a board of directors, elected by the unit owners, and is responsible for the financial management, maintenance, repair, and insurance of the common elements.
• Declaration/Master Deed and By-Laws: The legal framework for a condominium is established by a ‘Declaration’ (or Master Deed) and a set of ‘By-Laws’. The Declaration records the existence of the condo regime, defines the units and common elements, and sets out the rights and obligations of owners. The By-Laws provide detailed rules for the operation of the HOA, voting procedures, maintenance responsibilities, and use restrictions.
• Assessment Fees: Unit owners pay regular ‘assessment fees’ (often monthly) to the HOA. These fees cover the operating costs of the common elements, property insurance for the building, and contributions to a ‘reserve fund’ for future major repairs or replacements.
• Democratic Governance: Decisions regarding the budget, major repairs, and by-law amendments are typically made by the HOA board, often requiring approval by a majority vote of unit owners at annual general meetings. This provides owners with a direct democratic voice in the governance of their property. (en.wikipedia.org/wiki/Condominium)

5.4 Key Distinctions and Advantages over UK Leasehold

The fundamental difference between these global models and the UK’s leasehold system lies in the nature of ownership. In commonhold, strata, and condominium systems, the individual homeowner holds outright freehold ownership of their specific unit and a share in the common parts. This contrasts sharply with leasehold, where the homeowner holds a mere time-limited right to occupy, subject to a landlord-tenant relationship with a freeholder who retains the ultimate ownership of the land and building.

Advantages of these alternative models typically include:

• Outright Ownership: Owners have direct freehold title to their unit, eliminating concerns about diminishing lease terms, lease extensions, or the complexities of reversionary interests.
• Democratic Control: Management decisions are made collectively by the unit owners through elected bodies (Owners Corporation, HOA, Commonhold Association), promoting transparency and accountability. This replaces the unilateral decision-making power of an external freeholder.
• Absence of Ground Rent: As owners hold freehold title, there is no concept of ground rent, removing a significant financial burden and source of contention.
• Clear Financial Contributions: Financial contributions (levies, assessments) are directly linked to the costs of operating and maintaining the common property, and budgets are typically approved by the owners themselves.
• Empowerment and Stability: These systems empower individual owners with a greater sense of ownership, control, and long-term security over their homes, fostering more stable and harmonious communities. Disputes are generally resolved within a framework designed for collective ownership, rather than through a landlord-tenant dispute resolution mechanism.

While each system has its own intricacies and potential for disputes, they generally provide a more transparent, democratic, and owner-centric approach to multi-occupancy property ownership compared to the historically rooted and landlord-dominated UK leasehold system. These models offer valuable blueprints for how the UK could further reform its property laws to align more closely with contemporary expectations of homeownership.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

6. Conclusion

The UK’s leasehold property system is a profoundly idiosyncratic construct, a direct legacy of England’s feudal past that has stubbornly persisted into the 21st century despite repeated attempts at reform. Its evolution from basic agricultural tenures to the complex residential arrangements seen today highlights a historical expediency that, over time, has created significant structural inequities and inherent challenges for millions of homeowners. The persistent issues surrounding escalating ground rents, opaque and burdensome service charges, the prohibitive costs of lease extensions, and the fundamental lack of control over one’s own property have generated widespread dissatisfaction and political pressure for change.

While legislative interventions, particularly the Leasehold Reform Act 1967, the Leasehold Reform, Housing and Urban Development Act 1993, and the more recent Leasehold Reform (Ground Rent) Act 2022 and the Leasehold and Freehold Reform Act 2024, have incrementally chipped away at some of the system’s most egregious injustices, they have not fundamentally dismantled its core problematic elements. The partial nature of these reforms, such as the exclusion of existing leases from ground rent caps and the continued complexity of enfranchisement, underscores the entrenched nature of the interests involved and the difficulty in achieving comprehensive change. The failure of commonhold to gain traction in the UK, despite its theoretical advantages, further illustrates the inertia within the property market and the reluctance to fully embrace a more modern, owner-centric model.

Comparative analysis with global property ownership models – such as commonhold, strata title in Australia, and condominium ownership in the United States and Canada – offers compelling evidence that multi-occupancy buildings can be effectively managed under systems that grant individual owners outright freehold title to their units and a democratic stake in the governance of common areas. These models consistently demonstrate greater transparency, empower homeowners with genuine control, eliminate the arbitrary nature of ground rents, and provide clearer pathways for collective decision-making and dispute resolution. They stand as a testament to property ownership frameworks that are more aligned with contemporary expectations of equity and autonomy.

In conclusion, while the Leasehold and Freehold Reform Act 2024 represents a significant step forward by simplifying lease extensions, making them more affordable, and banning new leasehold houses, it is clear that the journey towards a truly fair and transparent property ownership system in the UK is far from complete. The continued existence of onerous ground rents for millions of leaseholders, the ongoing struggles with service charge transparency, and the fundamental power imbalance between freeholders and leaseholders indicate that further, more radical reforms may still be necessary. A comprehensive understanding of the leasehold system’s historical roots, its persistent challenges, and the successful alternative models employed worldwide is indispensable for informing future policy decisions. The ultimate goal must be to establish a property ownership landscape that robustly balances individual rights with collective responsibilities, ensuring that a home is truly a secure and controllable asset for all who invest in it.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

References

• Building Safety Act 2022 guidance and factsheets. (n.d.). Retrieved from gov.uk/government/collections/building-safety-act-2022-guidance-and-factsheets
• Commonhold and Leasehold Reform Act 2002. (2002). Retrieved from en.wikipedia.org/wiki/Commonhold_and_Leasehold_Reform_Act_2002
• Gattas, A. (n.d.). The English leasehold system: current benefits & challenges? Retrieved from gattas.co.uk/the-english-leasehold-system-benefits-and-challenges/
• Law of Property Act 1925. (1925). Retrieved from en.wikipedia.org/wiki/Law_of_Property_Act_1925
• Leasehold and Freehold Reform Act 2024. (2024). Retrieved from en.wikipedia.org/wiki/Leasehold_and_Freehold_Reform_Act_2024
• Leasehold and commonhold reform – House of Commons Library. (2023). Retrieved from commonslibrary.parliament.uk/research-briefings/CBP-8047/
• Leasehold Reform Act 1967. (1967). Retrieved from en.wikipedia.org/wiki/Leasehold_Reform_Act_1967
• Leasehold Reform (Ground Rent) Act 2022. (2022). Retrieved from en.wikipedia.org/wiki/Leasehold_Reform_%28Ground_Rent%29_Act_2022
• Leasehold Reform, Housing and Urban Development Act 1993. (1993). Retrieved from en.wikipedia.org/wiki/Leasehold_Reform,_Housing_and_Urban_Development_Act_1993
• Policy Exchange – The Property Owning Democracy. (n.d.). Retrieved from policyexchange.org.uk/publication/the-property-owning-democracy/
• Quia Emptores. (n.d.). Retrieved from en.wikipedia.org/wiki/Quia_Emptores
• Strata title. (n.d.). Retrieved from en.wikipedia.org/wiki/Strata_title
• The History of Leaseholds & Property Ownership in the UK. (n.d.). Retrieved from theleaseextensioncompany.com/the-history-of-leaseholds-and-property-ownership-in-the-uk/
• The UK Real Estate Revolution: Navigating Freehold vs Leasehold in the Post-Reform Era. (2023). Retrieved from ainvest.com/news/uk-real-estate-revolution-navigating-freehold-leasehold-post-reform-era-2505/
• Condominium. (n.d.). Retrieved from en.wikipedia.org/wiki/Condominium